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Matt Holmes & Cool Company - Case Study Example

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Case Studies 1. Matt Holmes & Cool Company  Evidently, the specified issue in the given case of Matt Holmes is new to the company. Therefore, a detailed study is essential to unfold the unseen aspects of the issue. To begin with, assent impairment occurs when an asset’s acquisition cost or net carrying value exceeds the future discounted cash flow…
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Matt Holmes & Cool Company
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Matt Holmes & Cool Company

Assets would be written down if the company continues to use those assets. Lack of recoverability of the net carrying amount must be recognized as asset impairment and it occurs under certain circumstances such as changes in regulation and business climate, technology changes, usage rate decline, and forecasts of a notable decline it the asset’s long term profitability. It appears that the Cool Company must perform an impairment test as the firm experiences changes in business climate. However, it must be noted that every change in business climate would not indicate asset impairment. ‘A quoted market price in an active market’ would be the best evidence of fair value and it must be applied as the basis for measurement (“Goodwill and other..”). Market inputs such as credit data and yield curve are some of the alternative methods of estimating fair value. From an asset impairment analysis, the Cool’s department manager would get valuable information that would assist him to determine whether or not those suspected assets should be written down. 2. King Company Good will is an account that can be seen in the asset side of the balance sheet. Often, good will arises as a result of acquisition of a company by another company. The amount paid for the acquired company over book value generally reflects the value of that firm’s intangible assets. Since the good will is not a physical asset as land and buildings, it is recorded as an intangible asset on the balance sheet. Intangible assets include good will, corporate intellectual property, and brand recognition. Typically, good will indicates the value of intangible assets such as patents, strong brand name, better employee relations, and better customer relations. US GAAP defines good will as the “excess of the cost of an acquisition price over the fair value of acquired net assets”; similarly, goodwill and some other intangible assets will no longer be subjected to amortization (“Stock dividend). Therefore, the reported amounts of goodwill would not decrease and moreover, goodwill recorded on the acquisition will not result in a ‘drag’ on future earnings for goodwill amortization. According to Graham, when goodwill is recognized by a subsidiary, it should be tested for impairment at the subsidiary level using the subsidiary’s reporting units; and if goodwill at the consolidated level is impaired, it would be recognized at the consolidated level (116). In total, the King Company would not face issues that were pointed out by senior accounting staff because the goodwill accounting has changed. Ethics case 1 Marco Chemical Corp The government and public are the stakeholders involved in the situation specified in the Macro Chemical case. The director of the Marco’s R&D division would not be ethically liable even if the chemical caused any disaster because he had strongly recommended the chemical’s further testing for side effects. On the other hand, the Marco’s president has worked against his professional ethics. The president had been advised by the R&D’s director regarding the chemical’s further testing in the laboratory for its side effects on other insects, birds, animals, plants, and even humans. However, the president did not consider such warnings as he focused only on the improvement of company’s sales and profits. In other words, he did not take human values or ... Read More
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